More Bumps and Bruises for Paramount
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Paramount: Stuck on Wall Street’s Naughty Step
Paramount Global reported earnings this week and, in what’s quickly becoming a grim tradition, its share price plummeted soon after. The media conglomerate missed on revenue in Q1 2022 (due in large part to weakness in advertisements), sending the stock spiraling down below $30.
But this ad-related “miss” is both: (1) completely explainable, and (2) just about the only bad news in the report.
(1) The entire difference in Paramount’s ad-related revenue came from not broadcasting the Super Bowl (and its many high-priced commercials) on CBS in 2022. Paramount gets the Super Bowl every four years as part of an agreed-upon network rotation, creating a difficult year-over-year comparison between 2021 (when CBS aired the game) and 2022 (when it did not).
Excluding the Super Bowl, Paramount’s TV Media revenue rose by 2% and advertisement revenue jumped by 4% in 2022.
(2) The rest of the picture looks pretty rosy for Paramount. The company added 6.8 million new Paramount+ subs with streaming subscription revenue up 95%. And, thanks to Pluto TV, streaming advertising revenue increased by 59%. Put it all together and overall streaming revenue topped $1 billion for the quarter.
Paramount also beat expectations on earnings per share and free cash flow. Plus, CEO Bob Bakish’s goal of 100 million streaming subscribers by 2024 looks right on track.
Pluto TV: To the Moon
With Netflix down 67% so far in 2022 — and facing more questions than ever — rival streamers now go out of their way to explain why they’re not just another NFLX.
On Tuesday, it was Paramount’s turn. Bakish noted that the company’s combination of broadcast television, feature film production, and both ad-supported and subscription streaming services is what sets them apart. He even took a dig at Netflix, calling it a “legacy streamer” for its sole reliance on subscription revenue.
Everyone’s getting their kicks in on Reed Hastings and co. these days.
No surprise here: I still think Pluto TV is Paramount’s secret weapon.
Pluto TV is a free, ad-supported (that means commercials) streaming service that closely mimics the traditional television experience with distinct channels and scheduled programming. Contrarian, to say the least.
And, although Pluto TV is swimming against the tide of the “future of streaming” as envisioned by Netflix, viewers are responding in a big way.
The service will surpass $1 billion in U.S. advertising revenue in 2022, leading Bakish to describe it as “a rocket ship”.
The Ultimate Margin of Safety
Warren Buffett once said, “The three most important words in investing are margin of safety.” In layman’s terms, that means purchasing a stock at a price below its intrinsic value, leaving plenty of room for error in case things don’t work out perfectly.
But not just a little below. WAY below.
And, in my decidedly amateurish opinion, Paramount more than qualifies at its current price of $29.88. That’s just 4.5x (!!) earnings for a media powerhouse that owns CBS, Paramount Pictures, Nickelodeon, MTV, Showtime, Paramount+, Pluto TV, and more. Oh, and don’t forget that 3.2% dividend.
I find it very hard to believe that the valuation of Paramount’s various business lines (broadcast television, feature films, streaming, etc.) adds up to less than $20 billion. Lots of hidden value here just waiting to be unlocked.
Either Mr. Market realizes this and corrects his drastic undervaluation — sending the share price soaring — or another streamer will pounce on Paramount (and its massive library of legacy content) at a cut-rate price. Behind either Door #1 or Door #2 are big-time returns for anyone buying Paramount under $30 per share.
This is not a stock-picking or financial advice newsletter, so salt to taste. Just wanted to share why I believe Paramount gets a raw deal on Wall Street.
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Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.